Spring budget 2024: What to expect – from tax cuts to vaping duty
The spring budget on 6 March is likely to be the last major fiscal event before the next general election, expected later this year.
The Tories have been hinting at further tax reductions in a bid to woo over voters as the party continues to languish behind Labour in the polls.
But as the country enters a recession, questions remain over whether there is enough so-called fiscal headroom in the Treasury’s coffers to make such a move.
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Here’s a look at what we can expect from the spring budget.
Income tax cut
The big headline grabber of the spring budget would be if Jeremy Hunt decided to cut income tax.
He is under pressure to do so by Tory MPs and has previously hinted he is keeping the move up his sleeve as a pre-election giveaway.
However, the chancellor has recently cast doubt over whether he would have the capacity to do this, given the high costs of servicing government debt and the UK entering recession.
Economists have also warned that public services could buckle under the weight of any further spending cuts to fund tax reductions.
According to the Resolution Foundation, slashing income tax by just 1p would cost £7bn and would actually result in tax bills rising for anyone earning less than £38,000 a year if the freeze on personal allowance thresholds was maintained.
Cancelling the personal allowance freeze planned for 2024-2025 would also cost £7bn, the think tank said, so this may be a more likely option as it would result in more people paying less tax.
National Insurance cut
Alternatively, Mr Hunt could decide to cut National Insurance (NI) again by 1p, at a cheaper cost of around £5bn.
According to The Times, this is something the chancellor is mulling over after shelving a 2p cut to income tax because of its unaffordability.
The report said the budget is likely to be more limited than last year’s autumn statement, when the NI rate was cut by two percentage points, though Downing Street called this “speculation”.
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Vape duty
The same report said Mr Hunt is considering a “vaping products levy” which would be paid on imports and by manufacturers of vapes in an attempt to make the habit unaffordable for children.
The tax will be specifically on the liquid in vapes, with higher duties for products with more nicotine. However, to ensure vaping remains a cheaper alternative to smoking, there will also be a one-off increase in tobacco duty, with the two measures expected to raise £500m by 2028/2029, the report said.
Downing Street confirmed to Sky News that the levy is being considered “as an option”.
Fuel duty cut
Fuel duty has been frozen since 2011, but it is due to go up by 5p at the end of March.
Scrapping the planned increase would cost £2bn, according to the Resolution Foundation.
Given the government’s recent attempts to create dividing lines with Labour by pushing a “pro-driver agenda” as opposed to more costly green policies, it seems likely Mr Hunt will extend the freeze.
Inheritance tax abolished
There has been rampant speculation that Mr Hunt could abolish Inheritance Tax (IHT). But given it raises around £7bn for public services a year and just 4% of the population pays it, scrapping it would be a huge electoral gamble.
While many Tory MPs hate it, any cut to IHT would likely be seen as a tax break for the better-off – and this is certainly the attack line Labour would take.
That being said, Mr Hunt may choose to change thresholds to take into account rising house prices. At present, IHT is charged at 40% and applies to estates worth more than £325,000, (though there are various allowances that can mean it’s only paid on more valuable estates).
Mr Hunt could look at tweaking the 40% rate, or changing the rules on gifting thresholds.
Help for first-time buyers
Away from tax cuts, Mr Hunt is said to be drawing up proposals for a 99% mortgage scheme ahead of the budget.
The scheme would allow first-time buyers to put down a 1% deposit, with the government acting as a loan backer, according to the Financial Times.
Housing Secretary Michael Gove has previously hinted something like this would be on offer either at the spring budget, or in the Conservatives’ next manifesto.
He has said the government is looking at “the rigidities in the mortgage market”, with other options reportedly under consideration including 30-year fixed-term mortgages or a resurrection of the Help to Buy scheme.
Many Tory MPs are concerned young people will abandon the party at the next election without policies that make it easier for them to get on the housing ladder.
However, experts have said cutting the upfront cost of a home doesn’t solve the issue of needing to build more of them, and owners could end up in negative equity, where their debts end up being bigger than the value of the home.
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Overhaul of lifetime ISA rules
Mr Hunt has hinted he is open to shaking up Lifetime Individual Savings Account (LISA) rules as another way to get more people on the property ladder.
LISAs offer a government-funded bonus on savings for buying a first home, but penalty charges apply if the cash saved is not spent on property, or if the property purchased is above the current £450,000 limit.
Money-saving expert Martin Lewis has called for that limit to be increased to take into account rising house prices, and for penalty charges to be reduced in order to make the scheme a more attractive savings vehicle.
Last month, Mr Hunt appeared on Mr Lewis’s show and told him he “absolutely” heard what he had to say on the LISA topic and to “consider the chancellor properly lobbied on that point”.
Child benefit reform
Mr Hunt may also use the budget to raise the threshold at which the controversial High Income Child Benefit charge applies.
Currently anyone claiming child benefit has to pay some of it back if they earn over £50,000 or all of it back once they start earning £60,000 a year. It is seen as particularly punitive to single-income families as one parent earning £50,000 would face the charge, but two parents earning £49,000 each would escape it.
Mr Hunt recently acknowledged the rules are “unfair” following campaigning by Mr Lewis, and said he would change it at the budget “if it’s affordable to do so”.
According to the Resolution Foundation, raising the withdrawal threshold from £50,000 to £70,000 would cost £2bn and abolishing it altogether would cost £4bn.